Rule 12 — NPS Rules
Original Rule Text
12. The Ministry of Finance, Department of Financial Services, is centrally responsible for the NPS. PFRDA as a regulatory body is mainly responsible to oversee the functioning of the whole NPS set up. There is National Securities and Depository Limited(NSDL), the Central Recordkeeping Agency (CRA) which inter alia maintains records, issues PRAN to subscribers and entertain request for change in nominations. Funds from PAO is transferred to a Trustee Bank from where it is distributed to three Pension Fund Managers (PFM) which are subsidiaries of SBI, UTI and LIC in a designated ratio. In the default scheme the PFMs invest 85% in fixed income instruments and 15% in equity or equity related instruments. At the time of retirement, while 60% of the value is returned to the subscribed, 40% is mandatorily required to be invested in Annuity Plan which ensures monthly pension to the subscriber.
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# Two Tiers System
What This Means
The Ministry of Finance's Department of Financial Services oversees NPS at the central government level. The Pension Fund Regulatory and Development Authority (PFRDA) acts as the independent regulator. The National Securities and Depository Limited (NSDL) operates as the Central Recordkeeping Agency (CRA), which is the backbone of the system — it maintains account records, issues PRANs, and processes change-of-nomination requests.
Funds flow from the Pay and Accounts Office (PAO) to a Trustee Bank, which then distributes money among three Pension Fund Managers: subsidiaries of SBI, UTI, and LIC. In the default investment scheme, 85% of contributions go into fixed-income instruments (bonds, government securities) and 15% into equity or equity-related instruments. At retirement (after age 60), 60% of the accumulated corpus is returned to the subscriber as a lump sum, while the remaining 40% must compulsorily be invested in an annuity plan that pays a monthly pension.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Ministry of Finance (Department of Financial Services) is the central NPS administrator.
- 2PFRDA is the regulatory authority monitoring the entire NPS framework.
- 3NSDL acts as the Central Recordkeeping Agency (CRA) — issues PRANs and maintains records.
- 4Three Pension Fund Managers (SBI, UTI, LIC subsidiaries) manage investments in a set ratio.
- 5Default investment: 85% in fixed income, 15% in equity.
- 6At retirement: 60% lump-sum withdrawal allowed; 40% must be used to buy an annuity for monthly pension.
Practical Example
When Priya, a joint secretary in the Revenue Department, retires at 60, her total NPS corpus is Rs 1.2 crore. She can take Rs 72 lakh (60%) immediately as a tax-free lump sum. The remaining Rs 48 lakh (40%) is sent to an annuity service provider (an LIC or other empanelled insurer). The insurer uses this amount to pay Priya a fixed sum — say Rs 20,000 per month — for the rest of her life. If she dies, her nominee receives the annuity as per the plan chosen.
Throughout her service, her monthly contributions were routed from her PAO to the Trustee Bank, and NSDL-CRA kept a running record of every transaction on her PRAN.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
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This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.